Vertical Farming Sector Struggles With Costs
22 April 2020
While the vertical farming sector has raised over $ 1 billion in funding since 2015, the sector faces huge challenges.
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The global market for vertically farmed produce is forecasted to grow from $ 781 million in 2020 to $ 1.5 billion by 2030, representing a CAGR of 6.85%, according to a new report from market intelligence firm IDTechEx, ”Vertical Farming: 2020-2030.”
$ 1 billion in funding since 2015
According to IDTechEx, investors are responding enthusiastically, with the sector raising over $ 1 billion in funding since 2015. High profile investments include New Jersey-based start-up AeroFarms raising $ 100 million in 2019 to expand its aeroponic growing facilities, and Californian start-up Plenty raising $ 200 million in 2017 in a funding round led by SoftBank Vision Fund, along with backers including Jeff Bezos and Alphabet chairman Eric Schmidt.
In Asia, the industry is already well-established – in Japan, there are over 200 vertical farms currently operating, with industry leader Spread Co. Ltd. producing 30,000 heads of lettuce every day in its highly automated Techno Farm Keihanna plant. However, the Japanese market growth is likely to be slow, with growth in North America and China driving the industry.
Vertical farming sector littered with bankruptcies
However, despite this optimistic picture, the industry is facing challenges. The sector is littered with bankruptcies as companies struggle with the power costs of maintaining a controlled environment 24/7 and the difficulties of coordinating the labour-intensive process of running a vertical farm. Nevertheless, companies remain optimistic, with advances in lighting and automation technology helping to shape the future of indoor growing, states the report.
Power and labour costs
One of the main challenges for the vertical farming industry is, according to IDTechEx, the power and labour costs. Vertical farming companies face a difficult decision between the extremely high start-up costs of a highly automated facility to reduce labour costs and improve efficiency, versus a cheaper facility with less automation and higher labour costs.
The report states that very few vertical farming companies currently operate profitably. If investor enthusiasm dies down, companies that are not operating efficiently could suffer.
Vertical farming uses carefully controlled growth conditions to give yields far higher than normal agriculture. However, labour and electricity costs form challenges.
Another disadvantage of vertical farming is the fact that it is currently mostly limited to leafy greens and herbs – high-value crops that are easy to grow and where most of the mass of the crop can be eaten. “Whilst this is a valuable market in itself, it is unlikely to revolutionise global food production,” say the researchers.
Issues with sustainability
Vertical farming uses a lot of electricity. According to the report, this not only makes vertical farming expensive but also presents issues with sustainability, with the energy used in the process far outweighing the benefits of reduced transport through local production.
Of course, there are also advantages. For instance, vertical farming can grow more crops with less land and less water than conventional agriculture, with no pesticides, year-round. By tailoring growing conditions to the exact needs of the plant, vertical farming could give much higher quality crops.
Disrupt notoriously complex supermarket supply chain
And, according to IDTechEx, by producing crops efficiently near urban population centres, vertical farming could disrupt the notoriously complex supermarket supply chain. Currently, fresh produce travels hundreds to thousands of miles to reach consumers, losing freshness along the way, and increasing the risks of contamination. Vertical farming could provide much fresher produce with less risk.
Also read: What is the cost of vertical farming?